Robert John McKendrick v The Financial Conduct Authority

JurisdictionEngland & Wales
JudgeLord Justice Hamblen,Lord Justice Holroyde
Judgment Date28 March 2019
Neutral Citation[2019] EWCA Civ 524
Docket NumberCase No: A3/2019/0500
CourtCourt of Appeal (Civil Division)
Date28 March 2019
Between:
Robert John McKendrick
Appellant
and
The Financial Conduct Authority
Respondent

[2019] EWCA Civ 524

Before:

Lord Justice Hamblen

and

Lord Justice Holroyde

Case No: A3/2019/0500

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES,

BUSINESS LIST (Ch D)

Mr Justice Marcus Smith

[2019] EWHC 607 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Mr Ashley Underwood QC & Mr Adam Tear (instructed by Howe & Co) for the Appellant

Mr Adam Temple (instructed by The Financial Conduct Authority) for the Respondent

Hearing date: 14th March 2019

Approved Judgment

Lord Justice Holroyde

Lord Justice Hamblen and

1

Mr Robert McKendrick (“the appellant”) was one of a number of defendants to a claim brought by the respondent Financial Conduct Authority (“the FCA”). In the course of the proceedings two worldwide freezing orders (“WFOs”) were made against him. He breached those orders in a number of different ways and admitted that he was thereby in contempt of court. On 1 st March 2019 Marcus Smith J (“the judge”) committed him to prison for a term of 6 months. The appellant appealed against that order, contending that it was far too long. At the conclusion of the hearing of the appeal we announced our decision to dismiss the appeal, and indicated that our reasons would be given in writing. These are our reasons for dismissing the appeal.

The facts:

2

For present purposes, the underlying litigation can be summarised very briefly. The appellant was involved in a number of investment schemes, in respect of which investors suffered losses. The FCA brought proceedings in relation to the operation and promotion of those schemes. After a contested hearing in March 2018 before HH Judge McCahill QC the appellant was found to have acted in contravention of the provisions of section 397, and to have been knowingly concerned in contraventions of sections 19, 21 and 397, of the Financial Services and Markets Act 2000, including by the making of false, misleading and deceptive statements in relation to one of the schemes. Judge McCahill QC recorded that he had found the appellant to be “an evasive and untruthful witness on critical matters”. The appellant was ordered to pay a sum in excess of £14.3 million to the FCA, for distribution to the investors. The appellant sought to appeal against that order, but permission to appeal was refused. On 23 rd October 2018 he was made bankrupt on his own application.

3

The first of the WFOs was made on 23 rd July 2013 by Roth J (“the Roth WFO”). The second was made by Judge McCahill QC on 27 th March 2018, after the conclusion of the trial (“the McCahill WFO”). Each of the WFOs contained disclosure requirements and a worldwide freezing provision. Each required the appellant to give details of all his assets, including any bank account whether in his own name or not.

4

The appellant has at all material times owned a number of buy-to-let properties from which he derives a rental income. It was clearly in the interest of all parties that he should continue to receive that income and should therefore be able to meet the mortgage payments and other outgoings of the lettings business. Each of the WFOs reflected that interest by allowing the appellant a sufficient sum to enable him to meet his liabilities each month, in addition to a sum for his living expenses.

5

By a consent order dated 29 th January 2014 the Roth WFO was varied in relation to a named account, account number 20641197 with Barclays Bank (“the Barclays account”) and was replaced by undertakings that the appellant would not spend more than £38,600 from the Barclays account. The appellant also undertook to provide the FCA with copies of statements of the Barclays account within 5 days at the end of each calendar month, thus enabling the FCA to monitor the appellant's income and expenditure.

6

The McCahill WFO brought the undertakings into the terms of the WFO. The McCahill WFO included a prohibition on the appellant dealing with his assets up to the value of £13.5 million, save only (i) if his assets exceeded that value (which they did not); and (ii) in respect of expenditure from the Barclays account, limited to £20,000 (later increased to £22,000 with the FCA's consent) towards living expenses, the buy-to-let properties and also a reasonable sum on legal expenses. This was subject to the FCA being informed of any disposal in excess of £1,000. The McCahill WFO was to operate, therefore, by the whole of the buy-to-let business operating through the Barclays account, in relation to which the FCA was again to receive bank statements within 5 days at the end of each calendar month.

7

On 11 th April 2018 the appellant provided an affidavit of his means, as he had been required to do by the McCahill WFO. Nothing in this affidavit suggested that rental payments were held in any account other than the Barclays account, and nothing was said to suggest that the appellant's wife or former wife Mrs Priya McKendrick (“Mrs McKendrick”) held any money on his behalf.

8

On 17 th April 2018 the appellant reported to the FCA that the Barclays account had been frozen or blocked by the bank, to the extent that payments into the account could still be received, and existing direct debits would still be paid, but the appellant could not access the account or make any amendment to it. The appellant has throughout contended that he could not realistically use the account for the purpose of his lettings business whilst it was blocked in that way.

9

Correspondence which was shown to the judge and to this court gave conflicting information as to the period of time for which the Barclays account remained blocked. The FCA were told by the bank that it had been unblocked by 27 th April 2018; but correspondence between the bank and the appellant showed that the account remained blocked until 15 th August 2018.

10

The appellant failed to deliver copy bank statements to the FCA in accordance with his obligations under the McCahill WFO. In particular, he did not provide the March 2018 statement until 2 nd May 2018; did not provide the April 2018 statement until 14 th May 2018; and did not provide the May 2018 statement until 23 rd July 2018. He blamed that failure on the difficulties he was encountering in operating the Barclays account. When statements were eventually provided, it could be seen that the Barclays account was no longer being used to receive the rental payments made by the appellant's tenants. The last rental payment into the Barclays account was made on 22 nd March 2018 (about 5 weeks after the draft of Judge McCahill QC's reserved judgment had been provided to the parties, but before its hand-down).

11

On 3 rd August 2018 the FCA wrote to the appellant asking what had happened to the rental payments. In his reply dated 17 th August the appellant said that rental payments were being paid into “a third party account whom I signed an agency agreement with” and that mortgage payments had been made “by my agent on my behalf”. In mid-September 2018, the appellant revealed that the third party agent to whom he had referred was Mrs McKendrick. He said that she had “been running the lettings for years”, and that the arrangement had been “formalised in 2017”. He provided to the FCA a copy of a contract for Mrs McKendrick's services which was dated 1 st April 2017. That contract provided for Mrs McKendrick to receive a commission of 10% of all rental income plus 12% of the annual rent of each tenancy signed or renewed. That entitlement was considerably higher than the commission which the appellant said he had paid to agents whom he had previously engaged but had replaced with Mrs McKendrick.

12

It is the FCA's case that the agreement to pay Mrs McKendrick such large commissions indicated a deliberate decision to ensure that there was no profit from the buy-to-let business, so that the funds could be kept away from the FCA, and that all of this had been kept from the FCA.

13

Investigations by the FCA led to the allegations that the appellant had acted in breach of both WFOs in failing to make disclosure, directing that rental payments be made to Mrs McKendrick and to accounts other than the Barclays account and by spending money paid to Mrs McKendrick. The FCA alleged that between March 2018 and his bankruptcy the appellant had failed to account for a sum approaching £40,000. They were not able to quantify the total sum for which he had failed to account.

The application for committal:

14

The FCA's application to commit the appellant for contempt of court was issued on 12 th October 2018. Five allegations of contempt of court were made against the appellant. They were in the following terms, which reflect the terms of the relevant requirements in the two WFOs:

“1: in breach of the McCahill WFO, Mr McKendrick's affidavit dated 11 April 2018 failed to disclose all his assets, in that it:

(i) failed to disclose Mr McKendrick's right to receive payments from Mrs Priya McKendrick;

(ii) failed to disclose that Mrs Priya McKendrick held money on behalf of Mr McKendrick; and/or

(iii) failed to disclose that Mrs Priya McKendrick was operating a bank account over which Mr McKendrick exercised de facto control or in relation to which Mrs Priya McKendrick habitually obeyed the instructions of Mr McKendrick.

2: from around May 2016, Mr McKendrick directed that rental payments on his buy-to-let properties be made to Mrs Priya McKendrick rather than the Barclays account to which they had previously been paid, in breach of the Roth WFO.

3: from around March 2018, Mr McKendrick directed that rental payments on his buy-to-let properties be made to Mrs Priya McKendrick rather than the Barclays account to which they had previously been paid, in breach of the McCahill WFO.

4: Mr McKendrick made mortgage payments...

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